Massive week for markets

Markets fixed on US stimulus bill and Brexit 

The final full week of the year before the festivities start and what a week it’s shaping up to be. No easing into the holiday period this year.

Negotiations going right down to the wire both in Washington and Brussels, while the Fed is widely expected to provide fresh stimulus to see the economy through this brutal winter wave of Covid-19. Just as we enter the holiday season when families are going to celebrate together, the US is seeing record numbers of Covid cases and fatalities, and the trend doesn’t appear to be slowing.

All the more reason why it is essential that Congress passes a relief bill this week, alongside funding to avoid a partial government shutdown. The lack of urgency is probably the reason talks are still happening now but there is no excuse now. Covid-19 is wreaking havoc once again which means more restrictions and economic hardship in the coming months.

The Fed is widely expected to do its part on Wednesday, with the longer end of the yield curve likely the target, having risen in recent months. The question is whether they’ll be more open to yield curve control – which has been touted for months – or just stick with the same process that has worked for them in the past.

While the Fed played a crucial role earlier in the year in stabilizing the financial system and supporting the economy through the lockdown, and has often been the only game in town over the last decade or so, Congress must do the heavy lifting this time around. While a month ago I was sceptical about a deal before the end of the year, recent movements on both sides has been very encouraging. Hopefully one of two major deals this week.

The other we’ve been waiting for much longer. Four and a half years, in fact. But we’re almost there and while another deadline has come and gone, I remain optimistic that we’re now just days away from a deal. This has been a hard-fought negotiation and there’s still some big issues remaining but with neither side willing to walk away from the table, I truly believe final compromises are close.

What’s interesting is the extent to which sterling traders share my optimism. The nerves have been creeping in the last couple of weeks, Thursday and Friday in particular, but the decision to continue beyond the latest deadline has given new hope and sterling is flying today. Up more than 1.5% against the dollar and almost 1.2% against the euro.

With the differences seemingly narrowing, despite significant gaps remaining, we’re at least heading in the right direction. Time is fast running out so I expect the nerves to remain at any hint of a setback. It’s going to be an action-packed week, at the end of which we may be able to finally ease ourselves into the holiday period safe in the knowledge that various problems have been avoided this month. Too much to ask after this year?

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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